Insiders who invested in the space and AI firm months or years prior to its June IPO, which was priced at $135 per share, stand to reap substantial benefits with the end of the lockup. However, their sell-offs could exert further downward pressure on a stock that has already dropped 49% since its peak in June.
An uptick in selling activity is expected, but identifying which insiders are offloading shares or reducing their holdings will be crucial for gauging market sentiment regarding the company’s future, according to fund managers, brokers, and analysts.
“This may be the most discussed lockup in IPO history,” remarked Robert Hackel, CEO of institutional brokerage firm R.F. Lafferty & Co.
He has been receiving inquiries from pre-IPO investors keen to sell some of their SpaceX shares to acquire privately traded stock in other IPO contenders like AI leaders Anthropic and OpenAI, as well as defense technology startup Anduril Industries.
“Many exits are anticipated,” he stated.
SpaceX’s employees and early investors are “sitting on tremendous profits, giving them a strong motivation to realize returns and diversify their holdings,” explained Matt Kennedy, senior strategist at Renaissance Capital, which specializes in IPO research and investment funds.
While CEO Elon Musk holds about a 42% stake in the company, he cannot sell his shares until one year after the IPO due to a separate lockup agreement. Musk has not yet responded to a request for comment.
Many employees will be able to sell shares starting Thursday, although executive officers are still bound by longer lockup agreements that typically do not begin to expire until after the fourth quarter results are released.
On Wednesday, SpaceX shares declined approximately 8.5% after reporting a robust 92% increase in revenue for the second quarter. The stock continued to slide, despite CEO Bret Johnsen’s assertion during the earnings call that the company is on track for annualized revenue of $100 billion by year-end.
The lockup expiration could be a contributing factor, suggested Brian Mulberry, chief market strategist for Zacks Investment Management.
The sell-off “appears to be more sentiment-driven, as media reports indicate that many insiders will look to sell following the strong results this week as their shares become fully vested,” Mulberry noted.
SpaceX did not immediately reply to a request for comment regarding the anticipated selling after the initial lockup expiration.
ALL EYES ON WHO SELLS DOWN THEIR STAKES
Lockups are standard following IPOs to prevent insiders from offloading shares for a specified duration. However, SpaceX’s lockup is distinctive because the banks staggered the release of shares over nearly a year, rather than allowing billions of shares to become eligible all at once. On Thursday, up to 912 million of SpaceX’s approximately 13.6 billion outstanding shares will become available for sale, effectively more than doubling the company’s current public float.
The existing float is so limited that the initial lockup expiration could more than double the shares available for trading, and if a price-based early-release clause is activated, it could triple the public float.
“This time, it will be a multiple of the shares outstanding entering the market, rather than a fraction, making this lockup an intriguing test of the early investors’ commitment to support the company long-term,” stated Andrew Chanin, CEO of Procure AM, which manages the Procure Space ETF linked to an industry index investing approximately 6% of its assets in SpaceX.
A significant sale from an early backer could provide strong insights into the confidence level in SpaceX’s outlook, according to Lukas Muehlbauer, a research associate at IPOX.
Founders Fund, Craft Ventures, board member Antonio Gracias’s Valor Equity Fund, and Alphabet were among the initial supporters, based on PitchBook data during SpaceX’s IPO. They did not respond to requests for comments.
To assess the chances of a substantial sell-off, Gabriel Shahin, founder of Falcon Wealth Planning, is reaching out to contacts among SpaceX insiders and employees. His conclusion: none seem inclined to sell.
“They are long-term believers in SpaceX, leading us to be more optimistic about insiders maintaining their shares and what that implies for the stock,” he confirmed.
However, Shahin acknowledges that each upcoming lockup expiration is likely to increase market volatility. Currently, SpaceX’s volatility complicates efforts for many investors trying to hedge against further declines as options prices soar to “sheer insanity,” said Shahin.
